DVD Death Watch: Sales Drop 20 Percent

DVDs are one step closer to extinction if recent numbers from a Hollywood trade group are any measure. DVD sales in the United States dropped by 20 percent during the first three months of 2011 compared with the same time last year, according to a report by the Digital Entertainment Group. The group blamed the drop on the timing of Easter and a dearth of blockbuster DVD releases in early 2011 compared to four major DVD debuts in early 2010.

Perhaps attempting to play down the significance in the DVD drop, the group also said that while DVD sales were falling, people still loved their discs. The industry organization quoted a recent NPD report that said that 75 percent of Americans still prefer DVDs and Blu-ray discs over alternative viewing methods.

It's not hard to see why Hollywood studios would be nervous about losing their DVD cash cow. Even after a 20 percent drop, DVD sales accounted for more than $2 billion in revenue for the quarter. Digital purchases and video on demand (not including streaming), by comparison, brought in a little more than $600 million. Subscription and streaming rental services accounted for nearly $700 million.

Overall, home entertainment spending was down by nearly 10 percent in early 2011 compared with the same period last year.

Alternative Growth

While DVD sales were falling off a cliff, other entertainment choices were gaining in popularity. Subscription and streaming services such as Netflix grew by 33 percent compared with the same time last year, digital download purchases (what trade groups call "electronic sell-thru") grew by 10 percent and video-on-demand services from cable providers were up 8 percent.

Even though sales are dropping, the DVD is still holding its own against online streaming and rental services such as iTunes, Amazon, Hulu and Netflix. DVD rentals from kiosks such as Rebox grew by 30 percent, and the Digital Entertainment Group says DVD sales for the second quarter of 2011 are already up 20 percent compared with 2010. Blu-ray is also big, with the entertainment group expecting Americans to spend more than $100 million on Blu-ray 3D software in 2011.

HDTVs Bigger Than Blu-ray

Nearly 30 million U.S. households now have Blu-ray hardware sitting in their entertainment centers, according to the entertainment group. But when you consider there are more than 116 million households in the country, 26 percent Blu-ray penetration isn't that impressive.

Especially if you compare Blu-ray popularity to HDTV adoption. In November, Nielsen said 56 percent of U.S. households now have HDTVs. So high-definition viewing is big, but Blu-ray isn't.

If most Americans aren't viewing Blu-ray discs what kind of high-definition content are they viewing? Opting for HD cable maybe? Perhaps HD online movie rentals are more popular, thanks to Internet-connected TVs and set-top boxes such as the Roku and Apple TV? Or maybe most Americans have no idea how to get an actual high-def picture on their TVs. My money's on option number 3, how about you?